Return on Capital Employed, ROCE, is understood by many. Few, however, understand how to substantively maximize it. A proper set of metrics help the organization drive to maximal ROCE. The below schematic illustrates a few, but certainly not all of them. The executive dashboard, to be effective, must dovetail related KPI's (key performance indicators) down through all levels of the organization. This helps employees understand their contributions.

The focal point in delivering maximal ROCE is to compress lead times. If physical lead time compression is not possible, then one must deploy abstract lead time compression methods. There are several. Abstract lead time compression techniques endure some probabilistic conclusions, but they can be minimized via some techniques evolving around planning and control functions of management, which include the dovetailing of executive dashboards throughout the organization.

Why should an organization want to deliver maximal ROCE? The next schematic highlights that. Considerable research suggests there is a high correlation between stock price and cash flow relative to equity. EBITDA attempts to capture, but the old fashion ROCE methods are better. Some companies enjoy reporting high profits, while eating their cash to deliver it. ROCE methodologies diminish one's false high profit exhilaration with the checks and balances ROCE delivers. In essence, a conflict between cash and profit can exist and especially so during economic downturns.

Emerson's Asco-Numatics division in Mt. Pleasant, TN improved their ROCE during the economic harshness of 2008-2010. They tripled their purchased material inventory turnover with a focus on KPI's. They did this with some good old fashion hard work with a significant focus on improving KPI's, as set forth by outstanding corporate leadership from Scott Weickel and Kevin Hubbard.

The operations folks in TN, Joe Malloy, James Jackson, Johnny Andrews, and Jonathan Spence, applied outstanding efforts with a unique desire to constantly improve. Terry Christopher's shop rearrangement improved material flow to world class levels, facilitating James and Johnny's material inbound plans. Johnny mandated perfections in tracking inventory turns by supplier name into two different groups of items while James mandated details on overall performance and gathered the correct people to resolve threatening situations. Joe programmed into their software certain key data elements that helped in both the planning and execution phases of inbound materials. They, as a team, kept it simple and to the point.  

There are many ways to deliver maximal ROCE. Emerson Electric's focus on that is one reason why their stock price performance seldom disappoints investors. There are many ways to deliver maximal ROCE. Working with the folks in TN reminded me of two of my favorite quotes.

"Without measurement, you have no control." - Peter Drucker

"The faster the feedback function, the fewer the number of defects." - Shigeo Shingo

TN operations exemplified Drucker's comment with eagerness to see how well they performed their objectives. Shingo's comment is an interesting one. Although Shingo related to the physical flow of parts/products from predecessor to successor operations with desired zero defects, the TN folks demonstrated that philosophy, abstractly. That is, human thinking and action can be either defective or with high performance results. They constantly avoided the former in favor of the latter.